English courts not the appropriate forum to determine whether Russian proceedings brought in breach of London arbitration agreement

Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors [20.12.19]

The English High Court has recently found in favour of defendant insurers in declining to grant anti-suit injunctions and declaratory relief on the basis that the English courts were not the appropriate forum to determine whether a claim commenced before the Russian courts should be referred to London seated arbitration under ICC Rules. Mike Wells and Russell Wright at Kennedys acted for members of the Chubb Group in successfully defending an expedited trial of the claim.

Background

The claimant, Enka, is a Turkish engineering business which was involved in the construction of the Berezovskaya power plant in Russia (the Plant). Following a catastrophic fire at the Plant in February 2016, which caused in excess of US$400m-worth of damage, Chubb Russia paid an insurance claim presented by the Plant’s owner and was subrogated to the owner’s rights against Enka.

Litigation timeline

In May 2019, Chubb Russia commenced proceedings against Enka and ten other defendants, all of whom had also been engaged in the design and construction of the Plant, in the Moscow Arbitrazh (i.e. commercial) Court.

In September 2019, Enka brought a claim in the English High Court for anti-suit injunctions and related relief against Chubb Russia and other members of the Chubb Group who were said to be untowardly ‘pulling the strings’ to restrain Chubb Russia’s continued pursuit of the Russian proceedings, which Enka contended breached a London arbitration clause contained in the construction contract between Enka and Chubb Russia’s insured (the Construction Contract).

It was common ground between the parties that the arbitration agreement was valid and binding on Chubb Russia. However, the defendants denied that the acknowledged obligation to arbitrate disputes extended to the dispute over Enka’s liability as alleged by Chubb Russia in the Russian proceedings so as to lie within the scope of the agreement. At the same time, Enka applied to the Moscow Court to stay the Russian proceedings pursuant to the New York Convention.

What is an anti-suit injunction?

In the context of arbitration where the seat is in England, the English court's anti-suit jurisdiction may be exercised to restrain a party from commencing or continuing proceedings in a foreign jurisdiction in order to enforce the negative obligation not to litigate that is the corollary of the parties’ agreement to arbitrate. The practice which anti-suit injunctions are essentially designed to prevent is forum shopping, which some litigants adopt in order to have their cases heard in a jurisdiction that they perceive to be more favourable to them. That said, there may be a number of reasons to apply for such an injunction, including cost, enforceability and procedural advantages in the contractually agreed forum.

The key issue in this case

The principal question that arose on Enka’s claim was which court should decide whether the claim brought by Chubb Russia against Enka in the Russian proceedings should be referred to arbitration.

The Chubb defendants argued that both the construction contract and the arbitration agreement contained within it were governed by Russian law, with the result that the English High Court was not the appropriate forum to determine whether there had been a breach of the arbitration agreement – at least in circumstances where there was a good arguable case that the Russian proceedings did not fall within the scope of the arbitration agreement as a matter of Russian law, and those proceedings were being pursued in good faith.

Conversely, Enka argued that the arbitration agreement was governed by English law and, under that law, the Russian proceedings were brought in breach of the agreement so that an injunction should be granted in accordance with the orthodox doctrine established in The Angelic Grace [1995].

The Angelic Grace principle

Millett LJ’s famous statement of principle in The Angelic Grace was that “where an injunction is sought to restrain a party from proceeding in a foreign court in breach of an arbitration agreement governed by English law, the English Court need feel no diffidence in granting the injunction, provided it is sought promptly and before the foreign proceedings are too far advanced…”.

The Court’s findings

The English High Court agreed with the Chubb defendants that it was not the appropriate forum to determine whether there had been a breach of the London arbitration agreement. If Enka was not content with pursuing its application before the Moscow Court to stay the claim against it to arbitration, then Enka should have commenced arbitral proceedings and sought relief from the arbitrators. Further, as regards Chubb Russia’s co-defendants, the Judge had no hesitation in dismissing Enka’s claims since they were founded on “something not far short of a purely speculative conspiracy theory”.

Governing law of the arbitration agreement

Although the Judge did not actually decide the choice of law issues, his judgment does contain a timely analysis of the case law on the proper law of arbitration agreements, with particular consideration of the effect or implication of the juridical seat.

The judgment includes analysis of the leading decision in Sulamérica SA v Enesa Engenharia SA [2013]. The Judge observed that “there are choices of seat and choices of seat”: in other words, not all choices are equal, and a choice of seat is not always sufficient to convey a choice of law for the arbitration agreement that is different from the choice of law for the contract as a whole (if one exists).

Put the other way round, where there is seemingly a choice of law for the contract as a whole (e.g. a classic “this contract” governing law clause), a choice of seat in the arbitration clause may not be sufficient on its own to cause that choice of law to be displaced so as not to apply to the arbitration agreement that forms part of the wider contract.  In the case at hand, the choice of London as the place of the arbitration under the ICC Rules was “not of any real moment” given the essentially supranational nature of ICC arbitration.

Comment

The decision will be of considerable interest to all carriers of multinational insureds which habitually incorporate London arbitration clauses into their contractual arrangements.  

The English High Court conducted a careful re-examination of The Angelic Grace principles and related case law, including the concept of ‘strong reasons’, and concluded that even if the English Courts had been the appropriate forum for deciding the question of breach it would have refused to grant an injunction against Chubb Russia on the grounds of delay, failure to pursue arbitration and the degree of Enka’s participation in the Russian proceedings.

The English High Court took its decision based upon the particular facts of the case.  However, general lessons to be drawn from the judgment include:

  1. The choice of London as the arbitral seat alone does not lead inexorably to the straightforward application of The Angelic Grace orthodoxy requiring that an anti-suit injunction should be granted. As the judgment here illustrates, the position may be more nuanced.
  2. Delay allowing foreign proceedings to progress may defeat a claim for an anti-suit injunction. Take advice and anti-suit action immediately upon awareness of a threatened or actual breach of a contractual agreement to arbitrate.

Read other items in London Market Brief - January 2020

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